Yen falls to record low against euro

By Edmund Conway, Economics Editor

12:01AM GMT 13 Feb 2007

The yen touched an all-time low against the euro yesterday, after leading world finance ministers stopped short of delivering an effective rescue package for the Japanese currency at the G7 meeting over the weekend.

The currency dropped to Y159 against the euro, although it later recovered some of the losses, rising to Y157.87 in late trading.

It came after the communique issued by the ministers at the G7 meeting in Essen, Germany, pointedly made no specific reference to the currency's recent weakness.

Currency traders had been speculating that the ministers would express concern about the yen, which has dropped 4.5pc against the dollar and 6.3pc against the euro in the past six months as the country's central bank leaves interest rates at just 0.25pc in an effort to ward off deflation.

But despite the entreaties of European members behind the scenes at Essen, the ministers left it off their statement, instead focusing on economic growth rates both in the US and Europe, adding that Japan's recovery is "on track".

Jean-Claude Trichet, president of the European Central Bank, said that the ministers were nevertheless concerned about the build-up of funds reliant on the so-called carry trade, in which traders take advantage of the low interest rates in countries such as Japan.

Marios Maratheftis, currency strategist at Standard Chartered, said the meeting's outcome was "negative for the yen". "We expect the yen to come under pressure and it will continue to under perform."